The rise in interest rates in the US is not a “fire on the opposite bank”! Three situations to be concerned about when Japan returns to a “world with interest rates”

“US Treasury Meltdown” and “Bad Interest Rates” --
Bloomberg and the Nihon Keizai Shimbun dated 5th each expressed the current situation of rising interest rates in the US in this way. Japan is no stranger's business, and the footsteps of rising interest rates are steadily getting louder. For Japan, where the “world without interest rates” continued due to a long-term negative interest rate policy, there is a possibility that rising interest rates will be impacted more than the United States. In light of the current situation in the United States,Stock price declines, real estate market cooling, high interest rates coexist with stagflationThere are concerns about these three situations.

Financial tycoons sound the alarm for continued high interest rates
The current US market is overshadowed by observations that interest rates will continue to remain high. Regarding inflation targeted by the FRB's interest rate policy, it is also affected by strikes centered on the automobile industry and movements in crude oil prices. Furthermore, a new risk of confusion in the US Congress over the government budget plan was added, and upward pressure on interest rates intensified even more. On the 4th, the yield on 30-year US bonds reached 5% for the first time since 2007, and the yield on 10-year US bonds was also temporarily set at 4.85%, and people are now aware that it will exceed 5%.
The Nihon Keizai Shimbun reports that big players in the US financial world are sounding the alarm for continued high interest rates, and also introduced comments by JPMorgan CEO Jamie Dimon that “the worst case is the coexistence of 7% high interest rates and stagflation.”

The yield on Japan's 10-year government bonds is at a high level for the first time in 10 years
Even in Japan, a “fire on the opposite bank” is not enough. The interest rate difference between Japan and the US has been affected in the form of depreciation of the yen, and bargaining between the Ministry of Finance and the market, which wants to put a stop to the rapid depreciation of the yen, continues, but a rise in interest rates in Japan is unavoidable in order to resolve the fundamental depreciation of the yen. For this reason, there is a widespread view that the Bank of Japan will soon abolish the YCC (yield curve control) policy or cancel the zero interest rate policy.

In Bloomberg on the 5th, Richard Clarida, who served as the vice-chairman of the FRB, said, “If data suggests that inflation is more sustainable than what the Bank of Japan currently anticipates,There is a possibility that the Bank of Japan will abolish YCC by the end of the year or early next year” it is pointed out.
There is also such speculation, and interest rates in Japan are also rising steeply. In response to the fact that the upper limit of the 10-year government bond yield was substantially raised from 0.5% to 1% due to the flexibility of YCC operations at the end of July, the yield on 10-year government bonds, which until then was in the 0.3 to 0.4% range, reached 0.775% on the 2nd of this month, breaking the high level for the first time in 10 years since 2013/9.
The highest bid yield for 10-year government bonds held on the 3rd was 0.77%, a high level for the first time in about 10 years since 2013/8, and the surface interest rate was raised from 0.4% until September to 0.8%.

Three situations expected due to rising interest rates
1. Stock price decline due to a reverse shift from investment to savings
Since deposit interest rates rise, it is expected that the relative deliciousness of stock investment will fade, and the “from savings to investment” flow will reverse. As interest rates rise in the United States, the outflow of funds to MMFs (money market funds) is progressing.
Domestically, in response to the rise in US interest rates, there are movements such as Sumitomo Mitsui Banking Corporation raising the annual interest rate on US dollar-denominated time deposits from 0.01% to 5.3% at once from 9/25. There is a possibility that the relative taste for stock investment will fade, and stock prices will drop.

2. The cooling of the real estate market
As mortgage interest rates rise, it is also expected that the real estate market will cool down.
According to data released by the American Mortgage Loan Bankers Association (MBA) on the same day, the 30-year fixed interest rate for mortgages for the week ending 9/29 exceeded 7.5% since 2000, and the number of home purchases reached a low level for the first time in decades.
In Japan, in addition to a decline in demand for real estate, there is also a risk that supply and demand will deteriorate as supply increases. Since it is said that Japanese mortgage users have a higher ratio of variable interest rates than in the United States, there is also a possibility that the number of houses sold that have suffered from an increase in the burden of interest payments will increase due to rising interest rates.

3. Coexistence of high interest rates and stagflation
The Nihon Keizai Shimbun dated 5th mentions that it is necessary to cover financial resources for the increase in the burden of interest payments by issuing government bonds due to rising interest rates in the United States, and government bonds supplied to the market continue to increase. Also, the confusion in the US Congress over the government budget plan shook trust in US bonds, which easily led to price declines, and I also touched on the fact that multiple major ratings companies moved downgraded after August.
Domestically, in the 2024 budget estimate request made by the Ministry of Finance in August, the estimated interest rate for calculating interest payments was set at 1.5%, 0.4 points higher than the previous fiscal year. Interest payments are set at 28.142.4 billion yen, 11.5% above the initial budget for the previous fiscal year, which was the largest ever. When a vicious cycle of increasing government bonds and rising interest rates occurs, the value of yen falls and financial disbursements for economic countermeasures become difficult, and the possibility of leading to “coexistence of high interest rates and stagflation,” as CEO Dimon refers to, is not zero.

The words of Mr. Thomas Di Galoma, BTIG's interest rate trading co-director, who spoke about the yield on 10-year US bonds that have come into view at Bloomberg on the 5th seem to apply to Japan as well. “We were caught up in the post-global financial crisis environment, a situation where everyone thought interest rates would continue to remain low in the future.”